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First central bank issued digital coin in the euro zone

Jul 07, 2020

The Central Bank of Lithuania announced in April of 2018 that it was exploring the possibility of issuing its own digital currency. Two years later, in July of 2020 Lithuania is about to issue the first central bank-produced digital coin in the euro zone.

This week the Baltic country will issue the digital coin- LBCOIN, as part of a project to trial central bank digital currencies and blockchain technology in everyday use. Currently it is planned to issue a twenty-four thousand digital tokens, which will go on sale next week, based on blockchain technology.

The digital tokens will be sold in packs of six for 99 euros. Twenty-four thousand digital tokens will be based on blockchain technology and each with an attached portrait of one of the 20 people who signed Lithuania’s declaration of independence in 1918. The central bank expects users to trade them with others to build a specific set that can then be exchanged for a credit card-sized physical silver coin with a nominal worth of 19.18 euros. LBCOINs can be exchanged directly with the central bank and on private blockchain networks.

The sum total of crypto exchange transactions from 2017 to 2018 stood at 661 million euros (around $762 million). According to ICO figures in October of 2018, Lithuania was one of the world leaders and shows the highest, 305 percent, growth from all over the world. Considering that, Lithuania is very suitable place to experiment with state-backed digital currencies and blockchain technology in everyday use. The launch follows on from Facebook releasing the whitepaper for its Libra stablecoin, which has forced central banks to start seriously considering launching their own digital coins.

The LBCOIN is very similar to what is known as a central bank digital currency (CBDC) putting Lithuania at the forefront of development of fiat digital currencies. CBDCs are traditional money in digital form, issued and governed by a country’s central bank. In comparison, cryptocurrencies such as bitcoin are produced by solving complex equations, and governed by disparate online communities instead of a centralized governmental body.

With national banks around the world hurry to develop CBDC, and Facebook cryptocurrency looms on the horizon, Lithuania has taken the step to issue the first central bank-produced digital coin in the eurozone, and LBCOIN is probably the most advanced experimental playground to test different reincarnations of the CBDCs. Furthermore, no other bank in the central bank community is thinking about digital currency before the Central Bank of Lithuania realized that there is a legitimate threat that other entities will take part in industry.

One of the reasons for such quick decision was that the Central Bank of Lithuania wanted to be first in order to provide society with what it wants. The sharp decline in the use of cash and the prospect of Facebook’s 2.5 billion users adopting the Libra cryptocurrency has led central banks to examine how they can issue their own forms of digital currency. CBDCs could change the role of commercial banks – which currently host all electronic accounts for the customers funds- when it comes to processing payments.

It was announced by the Central Bank of Lithuania that at the moment, the only way to hold central bank-issued money is to hold the physical cash. The recent coronavirus pandemic has accelerated the development of CBDCs as it has introduced millions of people to cashless and contactless payments, central bank officials said in June. Central banks will introduce CBDCs carefully to avoid fragmenting the financial and monetary system.

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